WASHINGTON — Virginia is in a stronger fiscal position than other large states, but still must begin making changes to close persistent funding shortfalls, the State Budget Crisis Task force said in a report released Thursday.
Such shortfalls could threaten a range of obligations, including debt service payments and escalating retirement and health care costs, warned the nonpartisan task force, which is chaired by former New York Lieut. Gov. Richard Ravitch and former Federal Reserve Board chairman Paul Volcker.
The task force was created in April 2011 to study the fiscal trajectories of states.
It found the fiscal challenges facing Virginia to be less daunting than those of the other states it analyzed: California, Illinois, New Jersey, New York, and Texas, but identified potential fiscal cliff sequesters or cuts and unmet transportation needs as threats to Virginia’s fiscal stability.
“Virginia is more dependent on federal spending than any other state, and if the $1 trillion in defense cuts currently under consideration were implemented, in proportion to current defense spending, the commonwealth could lose 122,800 jobs and $7.3 billion in wages,” the task force warned.
Republican House leadership is involved in ongoing negotiations with the White House to avoid going over the fiscal cliff, and many credit analysts and lobbyists continue to predict that a deal will be struck to prevent the sequestration cuts and tax hikes that Federal Reserve Chairman Ben Bernanke has warned would cause another recession.
Beyond the fiscal cliff, the task force report focuses on transportation infrastructure, a major focus of the administration of Virginia Gov. Bob McDonnell.
“Virginia has the nation’s third largest system of state-maintained highways, and while the task force found that Virginia does a better job than the other states the task force analyzed in monitoring and identifying infrastructure needs, the commonwealth has failed to come close to funding them, consistently, for the past few decades,” the report said.
“The importance of addressing the state’s eroding transportation situation is especially critical,” said Frank Shafroth, the director of the Center for State and Local Leadership at George Mason University. Virginia “must confront its volatile and eroding revenues in order to finance investment in the state’s future ability to be competitive,” he said.
Between fiscal years 2009 and 2012, the commonwealth has had over $11 billion in budget shortfalls, the task force found. The group projected that if Virginia remains on this path, its revenues will continue to fall short of meeting a growing list of obligations, including debt service.
“The Task Force has not advocated specific solutions, however, it does not equivocate on its call for Virginia to start making the tough choices necessary to overcome current challenges and avoid entering into the structural deficits observed in other states,” the report concluded.
